When you buy real properties, there are several considerations that one must assess before reaching a conclusion or decision on what property to finally purchase. More importantly, when purchasing properties from banks which have previously foreclosed, there are several pros and cons which every buyer must take into consideration.
This article will be a comprehensive guide to help prospective buyers be mindful and conduct their own due diligence in order to come up with a well-informed decision before finally purchasing a bank foreclosed property (NPA) for sale.
What is a Bank Foreclosed Property?
Bank foreclosed properties are properties that the banks have seized due to the failure of the original owner to make the necessary payments as they fall due, and thus failing to meet their obligations with the bank. In other words, these are called non-performing assets (NPA). The bank seizes said properties due to the failure of the debtor to settle their home loans, personal loans, business loans, or any other loans, debts, or legal obligations with the bank.
These properties are used as collaterals for said loans, and then become properties of the bank (lender), which would then be put up for sale in an auction in order to settle or pay off the indebtedness of the debtor with the bank. These non-performing assets are usually sold at a price significantly lower than that of the market value to quickly dispose and move the assets and use the proceeds of the sale to settle the debtor’s obligation with the bank.
The Thai Law on foreclosures are embodied under the Civil and Commercial Code, as amended. This Section 729 of the law protects the interest of consumers against commercial banks wherein the mortgagee is only entitled to claim foreclosure of the mortgage, with these following conditions:
- The debtor has failed to pay interest for five (5) years;
- The mortgagee must prove that the value of the mortgaged property is lesser than the mortgage;
- No preferential rights or other mortgages are registered over the same property.
List of Top Thai Banks Offer Foreclosure Properties
The following are the leading ธนาคารพาณิชย์แต่ละแห่งในไทย that offer foreclosed properties:
1. Kasikorn Bank (Kbank)
Kbank offers its customers a diverse range of financial services and products and has been in the industry for over 70 years. Among its offerings are various foreclosed properties for sale, including condos, single houses, land, townhouses, and commercial buildings at a suitable price. You can find a suitable property on Kbank’s website listings for your reference.
2. Bangkok Bank (BBL)
BBL provides customers with quality financial services and maintains its status as a well established international bank and leading Asian bank. They have been the 6th largest Bank in SouthEast Asia and the largest bank in the Kingdom in total assets.
In connection with NPA, BBL provides a variety of foreclosed property assets, including single houses, townhouses, condos, commercial buildings, and land, and they sell these at a very reasonable price. Find one of your options on the BBL’s website and filter the things you want.
3. ธนาคารไทยพาณิชย์ (SCB)
SCB has played a leading role to its consumers in providing financial services needed in Thailand. They offer a wide range of other products and services that meet the consumers’ demand, including the list of NPA. SCB offers many foreclosed properties, including single houses, condos, commercial buildings, townhouses and land. If you’re considering SCB, check their website for your next home investment.
4. Land and House Bank (LH)
LH Bank is a new alternative for buyers, created from the idea of a major real estate group in Thailand. With a solid financial position and principles of good governance, they list their NPA for auction, including single houses, condos, townhouses, and land. You can find your next investment property on their website as provided.
5. Bank of Ayudhya (Krungsri Bank)
Krungsri Bank is currently the 5th largest bank in Thailand with deposits and loans. They offer a full range of financial services to both individual and commercial customers. As such, at a very reasonable price, the Bank offers foreclosed real properties, including condos, townhouses, single houses, commercial buildings, and land. If you’re finding your next home or flipping houses, you can see what suits you on the website.
6. TMB Bank
TMB Bank is recognized as the leader in pioneering changes in savings, transactional banking, and digital innovations. They offer a wide variety of business services. TMB Bank has listings of its NPA, which includes condos, townhouses, and single houses, and commercial buildings. You can check their website and jot down your best options.
7. United Overseas Bank (UOB)
UOB Bank is known for its quality products and excellent consumer services. Aside from their different services and products, they offer different second-hand property assets for your next property investment under NPA. These include warehouses, townhouses, land, single houses, twin houses, factories, apartments, and commercial buildings. Visit their website, explore your options, and filter according to your preferences.
What Are the Benefits for Buying Foreclosures Properties from the Bank?
The five main benefits of purchasing foreclosed real properties from banks are the following:
1. High Bargaining Opportunities
Foreclosed properties are naturally sold at lower prices because banks need to act on them and liquidate them into cash on their bank balance sheet. They sell them as fast as they can to immediately settle the original owner’s obligation and to recover the lost investment they made. Buying second-hand real properties is one of the top tips for buying a property in Thailand because of its high bargaining opportunities.
Further, buyers should consider the capital gain or profit margin from selling the non-performing asset properties for short-term investments. Capital gain is the relationship between the purchase price and the profit received from selling. On the other hand, profit is the relationship between the purchase price and the selling price.
Hence, to obtain high capital gains, it should be kept in mind that NPA properties should be bought at a low price to get significant profits for selling them above their purchase price, based on the market value within the location. With this, you can differentiate between NPA properties with higher profit returns or low-profit margin and gauge what options should be rejected or accepted.
Aside from its low prices, there are potential strong returns to this property investment compared to newer real estate properties because the NPA was already completed at their original construction costs, likened to the real properties that are fresh in the market and tend to raise their prices yearly.
2. High Rental Yield and Return on Investment
Non-performing asset properties sold by the bank would yield high rental returns by renting these properties out, especially for long-term investments. If you are considering this investment, consider calculating the NPA property purchase price with the rental rate in the area to come up with a gross rental yield.
EQUATION: (Expected Annual Rent / Purchase Price) x 100 = Gross Rental Yield
With this equation, you can determine whether the prospective NPA properties are suitable. Note that good rental yield return in Thailand ranges from 5% to 10%. Thus, buying property in Thailand and calculating the rental yields will help the investor examine the conceivable returns of the non-performing assets and the associated risk and assess whether to accept it or reject it.
3. Premium Locations
These NPA properties are potentially in good locations, as they were carefully screened, and extensive due diligence was done before the bank approved the loan. As such, due to the asset quality check, these properties are generally in a place convenient to roads, nearby community areas such as hospitals, schools, and shopping malls, as well as other basic necessities for daily living.
Further, searching the foreclosed property market has increased chances of finding real properties located within the city area at bargain prices, as these properties have been previously constructed years before and located in the main city center areas whilst the recent developments taking place on the city outskirt, which could cause significant inconvenience when considering daily commutes. The cities may have brand new real properties, but expect these properties to be quite expensive.
4. Low Default / Construction Risk
The foreclosed real properties aren’t off-plan or in the developing phase since these properties were completed by a Thai real estate developer a long time ago. Thus, the buyer does not need to worry about construction delays, substandard materials used, or unfinished construction like in the latest projects.
Investors that buy NPA can use the property immediately when they plan to move in as soon as possible. These non-performing assets may need renovations, but they are usually cheaper. The total costs of purchasing defaulted mortgages properties from the bank and any necessary renovations required to be made on said properties may cost less than the amount required to construct new houses, which would be very expensive.
5. Free Household Furnitures and Equipments
Second-hand houses, which are non-performing assets sold by the bank, mostly come with household furniture and equipment that banks don’t want to handle. As a prospective buyer, you can take advantage of these free, fully furnished houses. Usually, the price of the real property includes the furniture, appliances, and equipment that the previous owner owns. Hence, this may be cheaper than buying a new house and the interior items yourself.
What Precautions to Take Before Buying Foreclosure Real Estate?
The following are the four important precautions a prospective buyer must remember before buying one:
1. Be Aware of the Actual Condition of the Property
You cannot overlook the current actual condition of the property. The houses, townhouses, or condos can be older than they look in the picture and can cost you a lot of money and hassle in the future as you buy them in an As-is condition without knowing their actual state which is usually different from what you expected.
These second-hand houses were previously lived in, and naturally deteriorated because of its usage. As such, the buyer must take the proactive initiative to be aware of the property’s real condition by inspecting and scrutinizing the natural state of the property including its household furniture and equipment. If you are not aware of its exact shape, this may be a problem in the future because an extensive renovation and repair process, cleaning costs, and additional home modifications would cost you more money than expected.
Ideally, check the interior and exterior structure of the property, which comprises its walls, ceiling, roof, stairs, paints, electrical system, water system, and the entirety, to ensure it is usable and can function properly.
Contact the bank and ask permission for you to check the property you want to buy. In fact, you can ask an expert to accompany you, who is keen on these details, and inspect if renovation is needed and how much the cost assessment is. You can get an overview of the possible property’s total purchase amount including its repairs and renovations.
2. Occupied Property by Previous Landlord or Tenant
Check if the previous owner or tenant still occupies the property. In some cases, the original owners rent them out, and there are still tenants living there who have no responsibility for the situation, and it will be difficult to get them out immediately.
As such, there may be force majeure that requires eviction lawsuits and additional legal fees. Thus, verify with the Department of Enforcement or the Bank if someone is still living in the property. Likewise, check the title deed to see if there are annotations regarding rental, easement, or encroachment.
This is vital because it will be hard to get them out immediately, as you want to move in there urgently or do some renovations. Thus, before getting the property, ensure that no one is living there in order not to tire yourself with the process of ejecting someone, especially if you encounter very nuisance people to get out of the property.
What Can I Do if the Previous Owner Doesn’t Move Out?
You can apply for an ex parte application before the court to issue a writ of execution to make the previous owner move out of the property. This is embodied under Section 334 of the Civil Procedure Code of Thailand, as amended, wherein the enforcement officer from the Department of Enforcement transfers real estate property to the new owner. As such, the new owner would not waste time on any lawsuit as it can only request the court to issue the eviction warrant if they win the eviction case.
However, suppose there are other individuals besides the judgment debtors and their dependents, in that case, the new owner must undergo the litigation process to file a civil lawsuit. After winning the case, which would probably take years, the new owner can request before the court to issue an eviction warrant.
3. Complicated Purchase Process
Before searching for an NPA property, it is best to practice to request approval of credit limit (Pre-Approve) from several banks to be able to evaluate your repayment capabilities, as this may be the most complex part of your property search.
While some people prefer to purchase properties completely with cash, most may prefer to do it through a home loan, which is the most ideal and cost-efficient way of acquiring real property. Once you have the said pre-approval letters, then you can assess the differing interest rates and promotions of each bank to be able to make a guided and careful decision.
Moreover, another important factor as to why a pre-approval letter is important before making any property purchases is due to the fact that any security deposits made may not be refunded in the event that your loan with the bank is disapproved. In other words, the pre-approval letter guarantees that as soon as you find your preferred property and make the necessary security deposit, you can proceed with the transaction.
4. Consult Local Property Expert
You should have a good network with knowledgeable people about the market and its demand and supply. You can find assistance from reputable Thai Real Estate Broker Association (TREBA) Agents such as PropertySights Real Estate Expert. These property consultants are well-informed about these matters as they have been with this industry for a long time, have a good track record, and have an outstanding grasp of real estate property.
5 Steps for Purchasing Bank Foreclosed Assets in Thailand
There are five main procedures for buying a bank-foreclosed properties in the Kingdom, the following are:
Step 1 – Find the Right Property and Start Due Diligence
As can be seen in the list mentioned above of banks offering NPA properties, you can find there the most suitable property that aligns with your needs, purpose, and budget. These leading banks list foreclosed properties on their websites which are easy and convenient to navigate and allows you to filter down your choices to your liking.
After whittling down your options, you can continue your research on the different property details, legal status, surrounding area, the history of the property, and its present market value.
Once you find your property of choice, you can then proceed to book an appointment with the bank to proceed to your next step, which is to inspect the property thoroughly and compare the several different options. It may be a good idea to bring an expert or experienced property assessor to evaluate the condition of the prospective properties.
Step 2 – Inspect the Property Thoroughly
One of the most essential steps in purchasing property is to exhaustively inspect the property so that you can determine if the house would need possible repairs, renovations, refurbishment, deep cleaning, additional household furniture or appliances, and other factors which may cost further financial investment.
As advised in the first step, make sure to book an appointment with the bank to make an ocular check on the property, and be guided below:
- Ensure that the property is vacant and no one is living in there;
- Check the neighboring community and the road right of way;
- Interior Inspection this includes checking the walls, stairs, railings, floors, ceiling, electrical wirings, plugs, water pipes, foundation systems, kitchen and bathroom drainage, paints, doors, windows and the entirety of the property;
- Exterior Inspection. Verify outdoor work, including the gates, fences, garden, pool, water systems, roof, parking area, walkways, drainage;
- Furniture and equipment inspection includes built-drawers, cabinets, bulbs, tables, chairs, sofas, bed frames, sinks, etc.
Step 3 – Submit an Offer to Purchase and Wait for Approval
Submit to the prospective bank the necessary purchase offer documents, which comprise the complete bank form with all the details about the real property. Explicitly state the foreclosed non-performing asset code, the proposed price (should be higher than the bank’s selling amount), the payment terms and method, and attach the documents required by the bank.
Prepare an initial deposit, as some financial institutions will require this. After finishing this, you can now wait for approval which would usually take 3-5 business days, depending on the circumstances.
What Documents Required for Purchase Bank’s Foreclosed Assets?
The following documents should be submitted for application to the bank when buying foreclosed assets:
Requirements for Natural Person:
- Copy of the National identification card or any government identification to ascertain the identity of the applicant;
- Copy of the house registration.
Requirements for a juristic person:
- Copy of the authorized director’s national identification card or any government card to represent the Company;
- Copy of the legal entity’s registration documents or memorandum of association.
Applicable for both:
- Complete NPA property purchase intent notification form by the applicants;
- Complete NPA property purchase offer form by the applicants (buyer’s details and price offered);
- Other required documents mandated by the bank.
What Happens if My Purchase Application is Denied?
If the purchase application is denied, the bank will refund the initial deposit, and the buyer may make an additional offer but with a higher price proposal if the same property is still on the market for sale.
Step 4 – Sign the S&P Agreements and Place Advance Deposit
If the bank approves the application, the buyer will sign the sale and purchase agreement within the specified period. In this stage, a deposit is placed in proportion to the property price determined by the bank. The remaining balance will be paid depending on the agreed terms.
With the S&P Contract, the buyer can use this to apply for a loan. It is ideal to apply with the bank that sells the property because there is a higher possibility of approval and special interest being offered.
Can I Apply for a Mortgage with the Bank That Sells the Desired Property?
Yes, you can. Request your home-loan process before the bank that sells your preferred property because it is more likely to be approved and they can propose favorable interest.
Gather and submit your primary documents, including a copy of your national ID card, house registration copy, pay slips for the last 3 months, bank statement, and additional documents pertinent thereto to suffice the application. The application would take 10-15 business days, depending on the bank where you applied.
Step 5 – Transfer the Property Ownership
Once all the procedures have been followed, approved, and smoothly processed, the final step will be the property transfer in Thailand. At this final stage, the ownership is transferred to the buyer.
Still, of course, it will incur various expenses relevant to the transfer, such as the cost of the property, transfer fee, mortgage registration fee, stamp duty, personal income tax, specific business tax, and pertinent expenses related to transferring the said property. The property registration will now be completed, and the buyer will be the new owner.
If you are planning to invest in non-performing assets (NPAs) properties that have been foreclosed by the banks, our experts at บริษัท PropertySights Real Estate will guide you through this process. Our experts will help you find the properties that align with your needs to secure one with reasonable returns and benefits. You may contact us anytime for further assistance.
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